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October 2010 Issue 53
Asia Pacific
Automotives
BMI’s monthly market intelligence, trend analysis and forecasts for the automotives industry across Asia Pacific
regional focus
VW Targets ASEAN In March To
Global Leadership
German carmaker Volkswagen (VW) has identified South East Asia
as a prime market for growth as it looks to become the world’s largest
carmaker by 2018. According to BMI forecasts, total vehicle sales in the
region (Indonesia, Malaysia, Thailand, Vietnam, Philippines, Singapore)
are projected to rise from 1.97mn units in 2009 to 2.5mn units by 2014.
VW has already cracked the world’s largest passenger car market,
claiming first and second place in terms of sedan sales in China last year,
with its Shanghai VW unit leading with sales of 708,100 units and its
FAW-VW tie-up close behind on 669,200. However, with a slowdown
in China’s rapid vehicle sales growth expected in H210 and into 2011,
the German carmaker is looking for a safety net in the region.
An on-off relationship with Malaysian carmaker Proton had initially
offered one of the best routes to the market, until the latest round of
negotiations broke down in June. VW has since reached an agreement
with DRB-Hicom for the local assembly of its models from 2012. Local
production in the region is particularly important to take advantage of
the ASEAN Free trade Agreement, under which import tariffs between
signatories was reduced to 0-5% from January 1.
According to German press, VW is also eyeing Vietnam as a produc-
tion base. This is apparently due to its low labour and production costs
as well as its access to other markets in the region. While Vietnam is
not one of the highest ranking markets in BMI’s Industry Risk/Reward
ratings for the auto sector in Asia Pacific, local assembly will help VW
avoid the increasingly high tariffs in Vietnam.
Elsewhere in the region, VW assembles the Touran multi-purpose
vehicle (MPV) in Indonesia in partnership with the Indomobil group.
There is the potential for complete production to begin from 2012,
depending on the success of the venture. Thailand is also being tapped
through VW’s 19.9% stake in Suzuki Motor, which is planning a small
car plant in the country.
Apart from the growth opportunities in the ASEAN markets, one of
the major reasons for the expansion is keeping up with current global
leader Toyota Motor. In March VW’s executive vice president for sales
and marketing, Christian Klingler, highlighted Toyota’s sales of around
1mn units in the region, compared with the 30,000-40,000 from VW.
VW has experience of capturing market share in emerging markets,
not only in China, but also in Brazil, where it overtook Italy’s Fiat for
market leadership. The product mix played an integral part, with the
Fox and Gol compact models contributing significantly to its growth.
Assembling the Touran in Indonesia, where MPV sales accounted for
65% of the total industry volume in H110, suggests VW already has its
product strategy in mind. However, with its sales in the country down
17% for the first half of 2010 and Japanese brands accounting for nine
out of the top 10 places, the challenges are still clear.
INSIGHT
Contents
Regional Focus
VW Targets ASEAN In March To Global Leadership................................................... 1
China
Government Looks To EVs To Address Overcapacity Fears........................................ 2
GM Primed For Further Success With Opel’s China Strategy...................................... 2
GM-SAIC Milestone Project Marks Coming Of Age For Domestic Carmakers............... 3
Spain Stands As A Strong Contender For Chery Investment...................................... 3
Tyre Import Duty To Hurt EU-China Relations; Renault and BMW At A Loss............... 4
Volvo Faces First Test Under New Ownership........................................................... 4
India
Tata Takes Nano To High-Growth EMs As Competition Emerges................................ 5
Continental Targets ‘Key Market’ But BMI Warns Of Cost Risks.................................. 5
Mahindra Eyes Global SUV Strength Through Ssangyong Deal.................................. 6
Trend Of Emerging Market Firms Expanding Will Continue As MSSL Seeks Purchases. 7
Mahindra And Importer’s Future Uncertain As Expansion Takes Its Toll...................... 7
Pakistan
Japanese Dominance Threatened As Yen Forces Up Car Prices................................. 8
Thailand
Ford And Mazda Invest More As Cost Advantages Become Clear............................... 8
Malaysia
International Partnerships Lead To Expansion For DRB-Hicom.................................. 9
Indonesia
Steel JV Will Increase Local Content As Vehicle Demand Rises.................................. 9
Philippines
Ford Uncertainty Highlights Strength Of Thai Incentives Over Philippines..................10
South Korea
Exports Will Continue To Play Greater Role In Strategies.........................................10
Renault’s Import Plans Could Be Hampered By Aid Conditions.................................11
Kia Follows Asian Example in Uruguay, But Risk Lays In Brazil’s Bubble Bursting.......12
FTA Will Heat Up Competition Between Asian Carmakers........................................12
Japan
Distinct Brand Strategy And Local Production To Aid Nissan’s Expansion Plans..........13
Toyota Withdrawal: More About Protecting US Business?.........................................13
Nissan Looks For GCC Growth Despite Yen Threat..................................................14
Nissan Signs EV Agreement As Government Shows Signs Of Contradictory Policy......14
Singapore
Country Will Remain An Attractive Investment Location Despite Flextronics Pull-Out.14
Australia
Cross-Continent Cooperation Makes Holden Flex-Fuel A Reality................................15
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China Asia Pacific Automotives

director-general of MIIT’s equipment division. He also believes the

China industry should increase the market share of full electric and plug-in
electric cars. BMI notes that China has skipped ahead to focus on
Government Looks To EVs To EVs rather than hybrids as it wants to steal a march on other coun-
tries, while hybrids are becoming more widespread.
Address Overcapacity Fears The country already has a number of domestic carmakers produc-
As the Chinese government reveals that it expects to have 200mn ing electric vehicles, which will provide homegrown competition to
cars on the roads by 2020, plans are being accelerated to focus on the likes of the Chevrolet Volt and Nissan Leaf due out next year.
‘clean energy cars’, which will go some way to addressing the build However, Chery Automobile is showing the first signs of the kind
up of emissions in the world’s largest car market, and make use of advanced development that the government is looking towards.
of the industry’s burgeoning capacity. BMI expects total vehicle Chery has announced it has developed the necessary technology for
production to surpass 23mn units by the end of our forecast period extended range EVs (E-REVs), which would provide direct com-
in 2014, compared with 13.8mn in 2009. petition to the Volt, though to be the first E-REV. The Volt offers
Domestic Powerhouses
40 miles from the battery pack, which is supplemented by a petrol
China’s Leading Domestic Carmakers In ‘New Energy’ Projects engine with a 300 mile range.
Company Model Power
Chery has taken steps towards the E-REV, with the QQ3EV,
which travels 100km (62 miles) on a single charge, followed by the
Chery Automobile S18 Electric
S18, which travels 93 miles (149km). Details of the full mileage
A5, A3, A13 Hybrid offered by the E-REV have not been revealed, but the model will
BYD Auto F3DM Plug-in Electric Hybrid be launched during H111, in time to take on the Volt.

Geely Automobile
E6
EK-1
Electric
Electric
Chana Motors Joice HEV Hybrid Electric
Source: Asia Times
Several government departments are coming together to provide
the necessary policy framework. The Ministry of Industry and Infor-
mation Technology (MIIT) is finalising the ‘energy saving and new
energy vehicle development plan (2011-2020)’, which it expects to
publish in two months, as well as working with other departments
to revise the Automotive Industry Development Policy 2004. The
Ministry of Science and Technology is drafting a plan specific to
electric vehicles (EVs) covering research and development and fi-
nancial subsidies. This will be backed by the Commerce Department,
which will encourage the import of advanced related technology.
China believes it can take a lead in the EV industry and also sees
it as a necessity to face up to ‘the big challenge of having more than
200mn vehicles on the road’, according to Wang Fuchang, deputy
GM Primed For Further Success
With Opel’s China Strategy
Since China has overtaken the US as the largest market for General
Motors Company (GM) in terms of units sales in H110, the car-
maker has given the green light to its European division, Opel, to
begin sales in the country. Despite BMI’s projection for a consider-
able slowdown in vehicle sales growth, to 15% in 2010, compared
with 45% last year, GM sees demand for European cars in China
and will be marketing the brand in the premium segment alongside
German big hitters such as BMW, Daimler and its ongoing rival for
market leadership in China, Volkswagen (VW). High-end brands
have continued to perform well, despite a deceleration in growth
of the market as a whole.
After recognising demand in China, Opel tested the market in
2009 with sales of 4,000 units, according to German daily Deutsche
Welle. It is not yet know which models will be coming to China.

Table: Business Environment Ratings — Auto Industry Asia Pacific

Rewards Risks
Industry Country Rewards Industry Risks Country Risks Risks Autos Risk/ Regional
Rewards Rewards Reward Rating Ranking
Australia 58.3 87.2 68.4 80.0 68.2 74.1 70.1 1
China 81.7 44.9 68.8 65.0 65.2 65.1 67.7 2
South Korea 63.3 65.8 64.2 75.0 70.4 72.7 66.8 3
Japan 51.7 76.6 60.4 50.0 75.4 62.7 61.1 4
Thailand 53.3 48.3 51.6 60.0 56.4 58.2 58.3 5
India 68.3 28.2 54.3 60.0 55.8 57.9 55.4 6
Philippines 50.0 46.1 48.6 75.0 58.0 66.5 54.0 7
Indonesia 56.7 36.3 49.5 75.0 52.9 63.9 53.9 8
Malaysia 40.0 61.2 47.4 60.0 69.7 64.8 52.6 9
Taiwan 35.0 50.0 40.3 70.0 71.5 70.8 49.4 10
Singapore 11.7 90.1 35.3 55.0 86.0 70.5 48.5 11
Vietnam 45.0 26.8 38.6 85.0 51.5 68.2 47.5 12
Hong Kong 10.0 87.4 37.1 55.0 82.9 68.9 46.6 13
Pakistan 31.7 25.2 29.4 75.0 47.0 61.0 38.9 14
Scores out of 100, with 100 highest. Source: BMI.

2 www.autosinsight.com
China
Previously, Opel vehicles sold outside of Europe have been rebadged
under the Buick brand. BMI believes the key to success will be to
avoid overlapping with models from the GM group, especially in
markets where GM is successful, such as China, which is the group’s
most profitable overseas business.
Growing EM Domination
Market Sales As % Of Global Sales
40
35
30
25
20
15
10
5 5,000,000
BRIC North America
0
2005
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
f = forecast. Source: BMI
The first indications that Opel would move beyond its traditional
boundaries came in February 2010 when GM–in its plan for restruc-
turing the unit–revealed it would make Opel the base of its overseas
operations and would also export its cars to markets in the Middle
East and Asia Pacific, if feasible. Although GM cited an improved
outlook in Europe as a factor in its decision to withdraw from the
sale of Opel to Canada’s Magna International, the continued
weakening of the market has prompted Opel to seek more promis-
ing gains overseas.
With BMI forecasting a fall of around 6% in European car sales,
to 15.5mn units this year, CEO Nick Reilly estimates that Opel
will be able to corner only 1mn units by the end of the year–down
nearly 20% compared with last year. In comparison, our forecast
for 15% growth in China, albeit less than half last year’s growth,
offers considerably more potential.
Australia is another target for Opel. GM already has a strong
presence through its Holden subsidiary, which can be built upon,
and if Opel is targeting the higher end segments, sales of medium
and large cars are up by 14.3% and 2.6% respectively in the seven
months to July. Spokesperson Andreas Kroemer added that other
markets in Asia Pacific and South America would follow.
BMI believes that Opel’s choice of these new international mar-
kets is highly strategic. China, Australia and Brazil–the largest ve-
hicle market in South America–rank among the top 10 auto markets
in BMI’s Business Environment Ratings for the global industry. All
these markets clearly outshine Europe in terms of potential vehicle
sales growth. In BMI’s five-year forecast, we expect vehicle sales
in Europe to grow an average 2.7% y-o-y between 2010 and 2014,
while we expect them to rise 8-10% in China and South America,
and 4% in Australia during the same period.
GM-SAIC Milestone Project
Marks Coming Of Age For
Domestic Carmakers
General Motors Company (GM) and its Chinese partner Shanghai
Automotive Industry Corp (SAIC) have signed a cooperation
agreement for the development of fuel efficient engines, which
www.autosinsight.com
Asia Pacific Automotives
marks the first time a domestic carmaker and international partner
have shared technology. The two will develop 1.0 to 1.5-litre direct
injection turbocharged gasoline engines, aimed at tapping into the
smaller car segment, which is eligible for government tax breaks
incentives. The project also endorses BMI’s view that government
policy will increasingly influence product development.
Engine For Growth
China and India Total Vehicle Sales (CBUs)
25,000,000
China
India (four-wheeled sales)
20,000,000
15,000,000
10,000,000
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
f = BMI forecast; Sources: CAM, SIAM
Work on the engines will be shared between GM’s Detroit
facilities and the Shanghai GM joint venture (JV)’s own Pan Asia
Technical Automotive Centre. The engines will be used in models
sold both in China and globally, in a further boost for domestically
developed technology, although it will be three years before they
are available. One GM business likely to benefit is General Motors
India, now a 50:50 JV between GM and SAIC. Two of the new
models due to be launched in India are the Spark small car and the
slightly larger Aveo.
While the project fits with the Chinese government’s view of
creating a strong domestic industry, it also aligns with the country’s
move towards ‘clean energy’ vehicles. Shanghai GM is well geared
for this with its own ‘Drive to Green’ strategy, which has already
seen investment of US$1.1bn in powertrain development. Through
the programme, the JV is aiming to reduce the fuel consumption
and CO2 emissions of its vehicle fleet 15% between 2011 and 2015.
The JV will also complete development work on the prototype of the
Chevrolet New Sail EV, which will again involve local production.
The engine project will give Shanghai GM a good head start
toward its targets. According to Tom Stephens, GM’s vice chair-
man of global products, the new engines will help reduce carbon
emissions by around 20% when coupled with new transmissions,
also to be developed by the JV, which will improve fuel efficiency
by around 10%.
Stephens also said GM plans to launch 12 fuel efficient engines
in China over the next five years. This could mean further coopera-
tion with SAIC as the two have already spent US$1bn on combined
research and development since 2008, according to Stephens. The
tie-up is paying off, enabling SAIC to expand outside of its domestic
market to India, where BMI
Spain Stands As A Strong
Contender For Chery
Investment
Spain’s fears of losing its automotive production to cheaper locations
in Eastern Europe have been somewhat allayed with the news that
3
China Asia Pacific Automotives

Chinese carmaker Chery Automobile is considering setting up its

first European assembly facility in Catalonia, Spain. While other
Tyre Import Duty To Hurt EU-
potential sites in Turkey and Italy are also reportedly being looked
at, Jose Montilla, head of the regional government believes that the
China Relations; Renault and
Catalonia region ‘is best positioned’ to aid in the Chinese carmaker’s
plans for vehicles sales in the European and Mediterranean markets.
BMW At A Loss
The EU is looking to impose a 22.3% import duty on Chinese alu-
Maintaining Attractiveness minium car wheels for the next five years in a bid to guard domestic
Spain Autos Production (Units) : Historical Data and Forecasts
firms from low priced tyres made in China.
3,500,000
The increase in the 20.6% tariff imposed in May this year will
3,000,000
further strain Europe’s relations with China. It will also put a dent
2,500,000 in the cost saving measures of Renault and BMW, which both use
2,000,000 Chinese-made aluminium wheels.
Europe’s tyre market is primarily dominated by Bridgestone
1,500,000
Europe, Continental, Cooper Tires, Goodyear Dunlop Tires
1,000,000
Europe, Michelin and Pirelli. Most of these firms have streamlined
500,000 their operations in Western Europe and increased their manufac-
0
turing presence in lower cost Eastern European locations such as
Poland, Slovakia, Romania and Slovenia.
2005

2006

2007

2008

2009

2010f

2011f

2012f

2013f

2014f

Buses and Coaches production (CBUs)

Europe produces about 50mn tyres a year. However, it has
Trucks production (CBUs)
Light Commercial Vehicles production (CBUs)
become increasingly exposed to Asian imports, particularly from
Cars production (CBUs) China, India, Indonesia and South Korea. These countries made up
f = forecast. Source: Anfia, BMI 38% of total imports to the EU in 2007, according to the European
Rubber and Tyre Manufacturers Association (ETRMA).
Spain’s biggest strength lies in the fact that the country continues
BMI believes tensions between the EU and China have been
to offer a highly competitive base for autos production in Europe.
driven by two factors:
Estimates from the US Bureau of Labour Statistics show that hourly
Chinese imports have increased substantially from 3.7mn in 2006
labour cost for workers employed in the Spanish autos industry
to nearly 6.1% by mid-2009, making China the largest exporter of
stood at US$31.78 in 2007, way lower than the US$41.65 paid in
aluminium wheels to the EU, where it accounted for 12.4% of total
the UK and even more competitive than the US$33.36 paid in Italy.
tyre imports in 2009. But just 2% of EU tyre exports go to China,
Chery’s choosing Spain could also be influenced by Italy’s rela-
thanks to trade barriers
tively poor record on raising productivity, widespread corruption
Increased imports of low-priced Chinese tyres have made Eu-
and an inefficient labour market. Experiences of domestic carmaker
ropean tyre makers uncompetitive and they have lost market share.
Fiat have proved just how difficult and inflexible operating condi-
BMI believes this trend was accentuated by a US ruling placing an
tions can be for carmakers under pressure to improve efficiency in
additional 35% tariff on tyre imports from China, prompting most
autos production in Italy.
Chinese companies to divert their attention to Europe.
Meanwhile, Spain could win the project over Turkey on the
A final law governing the aforementioned duties is likely to be
back of its EU membership, given also that the possibility of the
passed by mid-November this year. While we expect most European
latter joining the EU remains off the cards for at least the next 10
tyre makers to welcome the ruling, there are concerns that the import
years, in our view.
restrictions are not strong enough to ward off Chinese competition
However, Spain’s auto production has been highly vulnerable to
to local industry. A 22.3% duty is nowhere near the 30% and 25%
the current trend of manufacturers transferring production facilities
tariffs imposed by US for 2010 and 2011 respectively.
to countries in Eastern Europe such as the Czech Republic, Rus-
sia, Slovakia and, to a lesser degree, Poland in recent years. This,
combined with aggressive restructuring by carmakers resulted in
Volvo Faces First Test Under
autos production falling from the record 2.88mn units in 2007 to
just over 2.17mn units by end-2009. Worse is the fact that while
New Ownership
Volvo Cars has started producing the new V60 station wagon at its
Ford Motor is looking to move its Fiesta assembly to outside of
Torslanda plant in Sweden. The model will offer strong competi-
Spain, Nissan Motor has revealed it plans to operate on reduced
tion to the BMW 3 Series Touring, Audi A4 and Mercedes-Benz
capacities within the country for at least the next three years. This
C-Class, and is an integral part of Volvo’s strategy to improve its
trend has prompted BMI to envisage a rather painful recovery for
profitability under its new owner Zhejiang Geely Holding Group.
Spanish autos production, reaching only 2.36mn units by the end
Turning around Volvo is likely to prove one of Geely’s biggest
of our forecast period to 2014.
challenges, given that the Swedish brand has not reported an an-
Our forecasts, however, could face upside risks now that carmak-
nual profit since 2005. Worse is the fact that its major markets are
ers are showing interest in increasing their manufacturing footprint
Europe and the US, where BMI expect a slowdown in economic
in Spain. In May, France’s PSA Peugeot Citroën revealed plans to
growth in H210 and 2011.
roll out a new car, specially designed for emerging markets, from its
Volvo is pinning its hopes on the V60, along with a newly intro-
facility in Vigo, Spain. In the same month, Ford revealed it would
duced S60 sedan, to boost sales and profitability in Europe. Plans
build its first hybrid models for Europe at its Valencia plant. Should
for the model’s sale in the US have been put on the backburner,
Chery opt for Spain, it will be looking to build a plant with an an-
however, with Tomas Ahlborg, project director for the V60, saying
nual production capacity of close to 300,000 units by 2012 and start
‘the market for sports wagons is pretty small’ in North America.
production by 2015.

4 www.autosinsight.com
India
Reversing The Losses
Volvo Cars Financial Results (US$mn), 2007-09
20,000
Revenue LHS
18,000
Operating Profit RHS
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0 -3000
2007 2008 2009
Source: Ford
Volvo hopes these new models will take its total sales to 400,000
cars a year, compared with the 334,800 units it shifted last year.
However, given that the company expects to sell 90% of the V60s
in Europe, BMI is cautious about the extent to which the model
could turn the company around.
The Association des Constructeurs Européens d’Automobiles
(ACEA) estimates sales of luxury vehicles in the region have been
declining since 2007. That year, the sector made up nearly 14% of
all new passenger car sales. The share fell to close to 10% by the
end of 2009 and declined further to 9.3% in Q110.
We believe luxury cars have lost out as small vehicles have
become increasingly popular in light of the impending emission
norms and consumer preference towards engines with greater fuel
efficiency.
However, we feel there are opportunities for Volvo to make
the V60 successful abroad. At the time of its acquisition, Geely
indicated it was keen to expand Volvo in other markets. Plans are
already under way for a new Volvo plant in China, to augment its
existing presence in the country.
We do not expect V60s brand image to be hurt by concerns about
its Chinese ownership, mainly thanks to the fact the vehicles will
be built, and mainly sold, in Europe. The V60 is due to go on sales
in Europe later this year and will be a litmus test for Volvo under
its new ownership.
India
Tata Takes Nano To High-
Growth EMs As Competition
Emerges
Indian carmaker Tata Motors is building on the domestic success of
its Nano budget car with plans to target markets in Latin America,
Africa and the Association of South East Asian Nations (ASEAN).
BMI believes there is potential for the US$2,500 car in emerging
markets with strong auto demand. We forecast average annual
growth of 5% for the combined ASEAN states and 8-9% for Latin
America over the next five years.
For other regions, the expansion of the Nano’s reach is likely
to involve dropping the title of the world’s cheapest car. The Nano
Europa is being specifically designed to meet international standards
and will include more ‘luxury’ features such as power steering,
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Asia Pacific Automotives
airbags and a more powerful three-cylinder engine. Tata is consider-
ing launching the upgraded Nano in India after it reaches Europe.
0 Targeting Similar Growth Patterns
Vehicle Sales In India, ASEAN And Latin America (CBUs)
-500 9,000,000
India* ASEAN LatAm
8,000,000
-1000
7,000,000
-1500 6,000,000
5,000,000
-2000
4,000,000
3,000,000
-2500
2,000,000
1,000,000
0
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
* four-wheel vehicles only, f = BMI forecast; Sources: SIAM, Gaikindo, TAI, CAMPI,
VAMA, MAA, Anfavea, AMIA, Adefa, Cavenez
Tata is ramping up production of the Nano for its global expan-
sion. After selling more than 50,000 units since its launch in July
2009, the opening of a dedicated plant in Sanand will provide the
capacity to produce 250,000 units per year. Prakash Telang, manag-
ing director of Tata Motors, expects output of around 20,000 units
per month.
However, BMI points out that while Tata is upgrading the
Nano’s features to appeal to a wider global audience, the recent
incidents of three Nanos catching fire is likely to arouse concern.
An internal investigation is being carried out and all Nanos sold are
being inspected, which Tata says is to ‘allay concerns’ and is not
an official recall.
The importance of Tata finding new markets for the Nano has
been heightened since the threat of competition has emerged from a
tie-up between Bajaj Auto and the Renault-Nissan Alliance. Bajaj,
a two and three-wheeler specialist, has undertaken the research and
development work for what has been named the Ultra Low Cost
(ULC) car. In May, Bajaj said it had been working on a car that
will offer low running costs and an engine that it hopes will be one
of the most fuel-efficient in its class.
BMI believes it would be difficult to beat the original Nano on
price, which is why Bajaj has been focussing on different priorities
such as fuel efficiency and running costs. According to the com-
pany’s managing director, Rajiv Bajaj, it has been ‘leveraging the
lower costs structure’ from its production of two-wheelers to lower
the production and running costs of the car, which should enable
some of India’s millions of motorcycle owners to upgrade.
Motorcycle owners have been a target market for small car
producers, who have been trying to encourage an upgrade to four
wheels. So far, however, India’s two-wheel market has in no way
suffered from the influx of new small cars and is forecast by BMI
to surpass sales of 10mn units in the current financial year (ending
March 2011), up 6.9% year-on-year. Within the two-wheeler sector,
motorcycle sales are expected to grow by 7.8%.
Continental Targets ‘Key
Market’ But BMI Warns Of Cost
Risks
German automotive supplier Continental is looking to expand
in India, complementing its partnership with Modi Tyres for the
5
India Asia Pacific Automotives

commercial vehicle segment, which BMI expects to outperform the

market in the current financial year. An increased workforce and
higher localisation are also on the agenda as the company looks to
capitalise on growing vehicle demand.
Costs Inflate Tyre Prices
Average Monthly Price Of Indian Standard Natural Rubber: Jun 09-May
10 (INR)
Mahindra Eyes Global SUV
Strength Through Ssangyong
Deal
Indian utility vehicle manufacturer Mahindra and Mahindra plans
to use its acquisition of a majority stake in South Korea’s Ssangyong
Motor to ‘gain momentum in global markets’, which aligns with
BMI’s view that emerging market brands will increasingly expand
globally. Mahindra has signed an agreement with the SUV special-
ist, which has been restructuring under court supervision, and due
diligence will follow.

M&M’s Global Expansion Since 2000

Year Markets Models
2000-2004 Tanzania, Sri Lanka, Congo, Madagas- Scorpio SUV, Mahindra
car, Mozambique, Ethiopia, Rwanda, Pik Up
Burundi and Nigeria
2004 Uruguay, South Africa Scorpio, Bolero Pik Up
2005 Italy, France Scorpio (known as
Source: Rubber Board of India
Goa), Bolero Pik Up
2006 Spain Goa, Mahindra Pik Up,
Continental’s focus on India became apparent when the Com- Bolero Pik Up
mercial Vehicle Tyre division revived its partnership with Modi in
2007 Bhutan, Sudan Morocco, Algeria, Mahindra Pik Up
2009 with a technical agreement, under which the local company Ghana, Chile
will produce a million truck tyres under the Continental brand. BMI
2008 Egypt, Brazil (both CKD production), Scorpio, Mahindra
expects the commercial vehicle segment as a whole to outperform Peru, Paraguay Pik Up
passenger car sales for the next five years. Despite incentive-driven
2009-10* US Mahindra Pik Up,
growth for the passenger car segment, the commercial vehicle Scorpio
market grew 38.3% in the last financial year. BMI expects this to
* = planned; Source: Mahindra & Mahindra
be followed up by growth of around 10.7% in the current financial
year, with the segment’s growth peaking at 15% in the year ending
The deal is likely to be mutually beneficial. While Mahindra’s
March 2013.
automotive division president, Pawan Goenka, says it plans to tap
The passenger car market is also expected to achieve strong
into Ssangyong’s R&D and technology expertise by investing in a
double-digit growth, albeit slightly below the commercial vehicle
new product range, the company also plans to create new growth op-
growth. BMI expects growth of 9.8% in the current financial year,
portunities for Ssangyong in India’s ‘rapidly growing SUV market’.
followed by steady growth of 10-11% for the remaining four years of
Mahindra believes the two firms are also similar in size and their
our forecast period. Continental does plan to enter the passenger car
orientation towards SUVs, making them a perfect fit to join forces.
tyre market, although managing director of Continental India, Claude
Mahindra expects the deal to be finalised by November, after
d’Gama Rose, says it is too early to say how or when. However, the
which it will consider bringing Ssangyong’s premium SUVs to India.
company does forecast growth of 35-40% in the passenger car tyre
The Indian giant is already a leader in the utility vehicle segment,
market and 50% in the commercial vehicle tyre market.
which grew 23.8% in the first four months of the current financial
An interesting factor in Continental’s strategy for India, is the
year (April to July). The acquisition of Ssangyong is aimed at adding
country’s growing role as an export base. Rose added that due to the
to the product portfolio to create a joint global brand.
large number of vehicle manufacturers now exporting from India,
Outside financing for the deal will not be required as Chair-
in line with BMI’s core view that emerging markets will become
man Arnand Mahindra claims the company has cash reserves of
global production bases, a high standard of tyre is required. BMI
over US$500mn, although a value for the acquisition has not been
expects sustained double-digit growth in total vehicle exports over
revealed. The size of Mahindra’s stake is also as yet unknown. At
the next five years, averaging 13.6%.
present, creditors hold 70% of Ssangyong, while its former Chinese
Although additional capacity will depend on the company’s
parent company, Shanghai Automotive Industry Corp (SAIC),
growth in India, Continental does plan to expand its research and
holds 10%.
development team by 30% this year. The German firm does plan to
Ssangyong workers hold SAIC management largely responsible
increase its localisation in terms of ‘the value chain’, which includes
for the carmaker’s near collapse. Following Ssangyong’s bankruptcy
local design centres and production facilities.
filing in February 2009, unionised workers said that they planned
However, BMI would outline one risk to increasing the locali-
to take legal action against SAIC for mismanagement. They were
sation of sourcing, if this were to be part of the plan, which is the
looking for compensation for damages, while also claiming that the
rising cost of raw materials. In July it was reported that rising rubber
lawsuit would secure complete separation from the firm. The Chinese
costs, which are now 150% higher than in December 2008, have
carmaker, which lost management control when Ssangyong entered
prompted tyre manufacturers to increase prices by 10% already this
bankruptcy, also had its stake reduced from the original 51.3%.
year. Apollo Tyres has implemented its fourth hike since January,
A positive point for Mahindra is Ssangyong’s recovery plan,
in both the original equipment and retail segments.

6 www.autosinsight.com
India
which was approved by the Seoul Central District Court in December
2009. The SUV specialist is aiming to return to profitability within
three years and triple sales in the same timeframe. BMI believes
that another positive aspect of Ssangyong’s plan is that its product
strategy fits with the South Korean government’s plan to speed up
mass production of electric vehicles. A revamp of the company’s
product range features heavily in its turnaround plan, which includes
producing an electric and a plug-in electric hybrid model within the
next five years. This is technology that Mahindra may be able to
take advantage of for its own development.
Trend Of Emerging Market
Firms Expanding Will Continue
As MSSL Seeks Purchases
The trend of companies from emerging markets (EMs) making
forays into traditional markets continues to gain momentum as
India’s Motherson Sumi Systems (MSSL) seeks opportunities
for acquisitions in Europe. BMI believes that opportunities for the
Indian supplier lie in the growth potential of auto production in
Europe, which we expect to reach 21.7mn units by the end of 2014,
Too Big To Ignore?
Key European Autos Production Markets: Historical Data and Forecast
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
Poland Czech Republic
Romania Hungary
f = forecast. Source: OICA, BMI
an 30% increase between 2010 and the end of the forecast period.
While this growth is hardly anything compared with the near
48mn likely to be produced during the same period in Asia, it testifies
one of BMI’s long-term core views that domestic Asian brands will
be looking to expand globally. This is despite widespread fears of a
slowdown in vehicle demand and production in Europe, indicating
that companies are drawn on one hand to the maturity and stability
of Western Europe, and also to the long-term demand and produc-
tion potential in emerging Europe.
Having established a strong client network of local majors such
as Mahindra and Mahindra, Tata Motors and Maruti Suzuki,
MSSL is keen to exploit its ties with South Korea’s Hyundai Mo-
tor to help it win similar contacts in Europe. MSSL will be helped
by its European subsidiary SMR, formed after its acquisition of
Visiocorp in January last year. The subsidiary has already brought
new orders from European original equipment manufacturers for the
Indian suppliers, and reportedly increased its clientele to regional
majors such as Volkswagen, Renault and BMW. The supplier is
also reportedly building its second plant in Hungary, with production
likely to commence from March 2011.
BMI points out that a similar strategy was adopted by India’s
Apollo Tyres, which acquired Dutch tyre maker Vredestein last
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Asia Pacific Automotives
year, and is looking to strengthen its presence in Europe, having
already built links ties with the likes of BMW and Volkswagen.
This clearly highlights a strategy that most companies from EMs
are adopting. The global economic crisis and consequent fall in the
value of businesses in Europe has made such acquisitions possible.
It not only created a ready network of client for these companies
with global ambitions, but also gave them access to well-established
manufacturing facilities in the region, making them more confident
about their investments in the region. MSSL alone is expected to
spend a significant proportion of its INR400-INR500cr (US$80-
US$100mn) investment in Europe on increasing its production
presence in the region.
Mahindra And Importer’s
Future Uncertain As Expansion
Takes Its Toll
While BMI generally views the global expansion of emerging mar-
ket (EM) brands as a positive development, Indian utility vehicle
manufacturer Mahindra and Mahindra is finding its move into
the US to be a steep learning curve. After facing a lawsuit from US
importer Global Vehicles in June over the time taken to gain the
necessary testing and certification to get vehicles on the market,
4,500,000 Mahindra now claims that the four-year agreement between the
4,000,000 two has been terminated.
3,500,000 This is perhaps one of the first signs of Mahindra’s lack of local
3,000,000 knowledge, as Global Vehicles claims the termination is invalid
2,500,000 according to both federal and state of Georgia laws. If anything, it
2,000,000 could only serve to plunge the Indian firm into a deeper legal mire,
1,500,000 particularly as Global Vehicles stated in its lawsuit that it has al-
1,000,000
ready spent US$35mn on preparing for the import and distribution
500,000
of Mahindra’s compact diesel truck.
0
Dealers are also refusing to recognise the termination of the
import agreement. According to Automotive News there are some
Slovakia
300-350 to dealers with franchise agreements and some have already
Slovenia started investing in showrooms. The truck is scheduled to arrive,
pending its approval by the Environmental Protection Agency
(EPA), in December, which is already 18 months after Mahindra’s
original target of mid-2009.
Aside from the contractual obligations, Global Vehicle is also
keen to take advantage of market performance. CEO John Perez has
expressed his keenness to have the first four-cylinder diesel truck on
the market, which is why the company has been pushing Mahindra
to secure EPA approval. Sales data show that this is a particularly
good time as truck sales have been improving.
Light truck sales were 17.8% higher year-on-year (y-o-y) in July
and 17.3% higher for the first seven months combined. Although
dealer incentives traditionally offered at this time of year are a fac-
tor, there has been a noticeable return to the pick-up market. The
downside risk for Mahindra is that sales of imported trucks were
down 1.3% in July and 5% for the seven months. Acceptance of an
EM brand may also be an issue, particularly if it has taken so long
to gain certification.
If Mahindra does want to go its separate ways it will be faced
with the cost of finding a new importer and dealer network, not to
mention the likelihood of trust issues following its legal wrangling
with Global Vehicles. It is a price worth paying, however, given
the importance of the market. Mahindra, which controls 65% of the
Indian utility vehicle segment, has said the US is a vital part of its
expansion strategy to become a leading truck and SUV producer.
7
Pakistan Asia Pacific Automotives

Pakistan Thailand

Japanese Dominance Ford And Mazda Invest More As

Threatened As Yen Forces Up Cost Advantages Become Clear
Car Prices Ford Motor and Mazda Motor will invest an extra US$350mn in
their AutoAlliance Thailand (AAT) plant in Rayong, which is prov-
Japanese carmakers have been forced to increase prices in Pakistan ing to be just as effective for other Ford subsidiaries as for AAT itself.
after the yen rose 10% against the rupee in the last three months, The cost savings achieved by importing certain models from
threatening their sales dominance and the country’s overall produc- Thailand, the leading South East Asian market in BMI’s Industry
Risk/Reward ratings, means that Ford Australia is benefiting from
tion industry. Pak Suzuki and Indus Motors, which represents
its sourcing from the plant and can improve its sales by having ac-
Toyota Motor in Pakistan, are likely to increase prices by 2-3% in cess to more stock.
order to protect their operating margins. Although both companies
assemble models locally, components still have to be imported to Thailand On Top
Vehicle Production In Major ASEAN Markets (CBUs)
Pakistan from Japan, which is driving up costs. 1,600,000
Thailand Malaysia
The price hikes come at a time when the industry is already suf- Indonesia Philippines
1,400,000
fering from a number of factors, including an earlier price increase
1,200,000
in April on the back of rising raw material costs. A similar 2-3%
increase was implemented as the price of steel sheet rose from 1,000,000

US$493 per tonne in Q109, to US$1,050. At the same time, carmak- 800,000

ers are facing declining volume sales in the wake of the country’s 600,000
worst ever floods.
400,000
Government support for the industry is negligible. The Daily
200,000
Times reports the government is actually calling for price cuts to
make cars more affordable. Additionally, rules regarding the im- 0
2007

2008

2009

2010f

2011f

2012f

2013f

2014f
port of used cars are being changed to allow second-hand cars less
than five years old into the country, which would further impact f = BMI forecast; Sources: CAMPI, Gaikindo, Thai Automotive Federation, MAA, OICA

domestic assembly.
In terms of import costs, the Japanese brands have such a stran-
glehold that they may not suffer relatively in market share terms. In
the passenger car segment, the only non-Japanese brand producing
locally that could have taken advantage was South Korea’s Hyundai
Motor, but data from the Pakistan Automotive Manufacturers As-
sociation (PAMA) show no output data from November 2009 and
no sales figures from May 2010. It does provide an opening for
other brands to enter at a competitive advantage, however. Chinese
brands have already emerged in the truck and motorcycle market and
could see this as an opportune time to expand into passenger cars.
On the downside, the heavy Japanese presence does mean the
industry as a whole will suffer and at a time when the sector had
started to recover. After a particularly bad year in 2008-2009, sales
for 2009-2010 (July to June) rose 43% in the passenger car and light
commercial vehicle segment, while output was 37% higher. How-
ever, this does have to be seen in the context of a low base from the
previous year and the increasingly difficult conditions for carmakers
mean similar growth in the current financial year looks unlikely.
While BMI believes that strong government policy and a well
developed production industry make Thailand one of the best export
bases in the region, Ford Australia now sources the Ford Fiesta from
the country. This is an endorsement of the AAT plant, which was
set up to produce the Fiesta and Mazda2 small cars under the gov-
ernment’s ‘Eco car’ programme, both for domestic sale and export.
Although Ford Australia is reticent about the chances of also
sourcing the Focus when Ford’s sole-owned plant comes on-
stream, there are a number of reasons why it would make sense.
The US$500mn plant is producing the Focus for export throughout
Asia Pacific, which should include Australia. Ford Australia itself
has also noted the benefits of cost and tax savings from importing
within the region, while also picking up on the disadvantages of its
current Focus sourcing.
At present the Focus is imported to Australia from South Africa.
However, Ford Australia’s marketing general manager, David
Katic, has been quoted as saying the company has had ‘supply is-
sues’ and that the ‘high variation of Focus sales is a result of that’.
Katic added that Ford Australia is now looking for consistency in
its supply of the Focus.

BMI JAPAN CURRENCY FORECASTS

Spot S-T Target End-10 End-11
JPY/US$ 84.55 - 87.00 89.00
JPY/EUR 126.52 - 126.15 111.25
Target Rate (%) 0.1000 - 0.1000 0.1000
Source: BMI, 31 August 2010

8 www.autosinsight.com
Malaysia
If a model cannot be built domestically it is important that deal-
ers can be assured a reliable source of stock. Before switching the
Fiesta sourcing, Katic said dealers could not aggressively market
the model as they did not have enough to sell. With sales of the
medium car segment, in which the Focus competes, up by 25% in
July and 14% for the year-to-date, having a large enough inventory
to satisfy demand will be key to being competitive. However, the
new Thai plant will not be operational until 2012.
With the Fiesta now proving its worth, the latest investment for
AAT will be aimed at building a new compact pick-up truck from
mid-2011. The money will be used to upgrade and retool the plant
to produce the truck for the domestic and export markets. Although
sales of pick-up trucks have dwindled in recent years, sales in H110
were up 47% year-on-year, while demand in other countries is also
a factor. Pick-up sales in Indonesia more than doubled in the seven
months to July, while in Australia, light commercial vehicle sales
were 6.8% higher in the same period.
Malaysia
International Partnerships Lead
To Expansion For DRB-Hicom
Malaysia’s DRB-Hicom has announced plans to expand the capac-
ity of its plant in Pekan, on the back of its growing ties with global
carmakers. According to the group’s managing director, Datuk Seri
Mohammed Khamil Jamil, the expansion and tie-ups are a step
towards the company developing its own vehicle brand. This is in
line with BMI’s view that emerging market companies will expand.
Much Improved
Malaysian Vehicle Production And Sales H110/09 (CBUs)
H110 H109
Passenger car production 269,884 209,072
Commercial vehicle production 23,889 20,770
Total Production 293,783 229,842
Passenger car sales 271,873 228,420
Commercial vehicle sales 29,204 22,885
Total Sales 301,077 251,305
Source: MAA
DRB-Hicom’s existing partnership with Suzuki Motors is
proving popular: there is a two-month waiting list for the recently
launched Suzuki Alto small car. The latest partnership with British
sports car manufacturer Potenza will see the Malaysian firm produc-
ing completely built units (CBUs) and knocked down kits (CKDs)
for export to be assembled in the UK, while talks are ongoing to
reach an assembly agreement with Germany’s Volkswagen.
The Potenza partnership is particularly significant for the Malay-
sian firm’s global ambitions, as it will see DRB-Hicom produce kits
for export back to the UK to be assembled for the domestic and other
European markets. The CBUs, meanwhile, will be shipped around
the Asia Pacific region. There are also plans to produce hybrid and
electric versions of the sports cars, which will give the company ac-
cess to new technology. Production is due to begin in 2012, by which
time BMI expects total industry production to exceed 650,000 units.
If discussions with VW are finalised, production of the German
brand’s cars is due to begin in Q211. The project would begin
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Asia Pacific Automotives
with assembly of CKD kits and according to Jamil, speaking at
the signing of the agreement in August, the project should play a
central role in making Malaysia a regional production hub, which
is a goal of the Malaysian government. In line with BMI’s view on
government intervention in the auto sector, the Malaysian Ministry
of International Trade and Industry (MITI) has opened a dedicated
division to oversee the development of the domestic industry, as it
looks to compete with other major ASEAN states.
The partnership is also a step forward for VW, which had been
looking to expand its ASEAN presence through a relationship with
national carmaker Proton, but talks were unsuccessful. VW has had
an on-off relationship with Proton. A previous agreement collapsed
in 2007. After the most recent negotiations failed, Proton cited VW’s
statement of having ‘other priorities’ as a factor.
DRB-Hicom’s ‘vision of designing and developing our own
brand of vehicles in cooperation with our global partners’ is a strat-
egy employed by some major Chinese brands, who built up expertise
and technical capability through joint ventures with foreign carmak-
ers, before launching their own brands. One risk to this scenario is
that the new National Automotive Policy is aimed at rationalising
the industry to two major volume producers, in order to curb the
threat of overcapacity, which is prevalent in China.
Indonesia
Steel JV Will Increase Local
Content As Vehicle Demand
Rises
A joint venture (JV) between leading South Korean steel producer
Posco and Indonesia’s Krakatau Steel is expected to serve the
majority of Indonesia’s automotive steel demand if completed on
schedule in 2014, by which time BMI expects annual vehicle pro-
duction to be just short of 1mn units. The dominance of Japanese
carmakers means that a significant amount of steel is still imported
from Japan, which given the current strength of the yen, is increas-
ingly expensive.
Hub Potential
Indonesia Vehicle Sales And Production (CBUs)
1,200,000
Sales Production
1,000,000
800,000
600,000
400,000
200,000
0
2006
2007
2008
2009
2010f
2011f
2012f
2013f
2014f
f = BMI forecast; Source: Gaikindo
Krakatau’s vice president of corporate communications, Wawan
Hernawan, said the new plant would enable the company supply steel
for interior parts and chassis, as well as the steel for car bodies that
it supplies now. Strong domestic demand is driving the industry,
with production growth of 41.5% and 41.4% in 2007 and 2008 re-
9
Philippines
spectively. The economic crisis hit hard in 2009 with output slipping
22%, but BMI expects a return to production growth of 34.4% in
2010, to accommodate sales growth of 40.6%.
In H110, total vehicle production was up 65% year-on-year (y-o-
y), according to data from the Association of Indonesian Automotive
Industries (Gaikindo), but Hernawan says the local steel industry
can only provide 40% of the 100,000 tonnes per year required by
the auto sector. As Japanese carmakers accounted for 99% of total
output over the six-month period, the majority of imported steel
comes from Japan.
According to Hernawan, it is not only the amount of steel required
that is an issue at present, but also the specifications. The company
produces steel flats with a width of two metres, which is smaller
than the usual requirement for the auto industry. Posco has report-
edly promised to have the Cilegon-based plant operational by 2014,
producing steel that will meet the needs of the domestic industry.
Increasing the availability of domestic raw materials will be a
contributing factor to meeting the government’s target for annual
production of one million units in five years. This is largely in
line with BMI’s forecast for just under 990,000 units by 2014. It
should also increase the competitiveness of producing locally and
attract more investment, which is another aim of the government.
In April, Industry Minister MS Hidayat announced that Indonesia
is looking for ways to make its auto sector an integral part of the
ASEAN Economic Community ‘and not just become a market for
other ASEAN countries’.
For Posco, the JV is another step into a country that is not only
resource rich, but also has strong vehicle demand. The company is
also planning a US$12bn steel plant in India, where BMI forecasts
average annual vehicle output growth of 12% over the next five years
and will take a 20% stake in a Brazilian operation run by Vale SA
and Korean steel producer Dongkuk Steel Mill Co. BMI expects
vehicle production in Brazil to grow an average 7.7% between
2010 and 2014.
Philippines
Ford Uncertainty Highlights
Strength Of Thai Incentives
Over Philippines
News that Ford Group Philippines (FGP) does not have a definite
replacement for the Focus when production of the model is moved
to Thailand in 2012 supports BMI’s view that Thailand is a more
attractive investment prospect due to its strong industry policy and
incentives. The uncertainty surrounding the finalisation and imple-
mentation of the latest Philippines Motor Vehicle Development
Plan (MVDP) has only served to further highlight the difference in
competitiveness.
If Ford does not replace the Focus with another model, it
will have even greater ramifications for the Philippines domestic
industry, as the US carmaker is the only vehicle exporter in the
country. Out of a full capacity of 15,000 units, Ford exports around
10,000. The company acknowledges that the incentives offered
under the current MVDP have been ‘very helpful’ in making the
Philippines more competitive against larger car making neighbours
such as Thailand. However, Ford has said it is keen to ‘under-
stand the specifics’ of the latest version of the policy.
As the Philippines Board of Investments (BoI) continues to draft
10
Asia Pacific Automotives
Comparing Rewards
BMI Auto Industry And Country Reward Scores For Philippines And
Thailand
54
Philippines Thailand
52
50
48
46
44
42
Country
Reward
Reward
Industry
Reward
Overall
Score
Note: The ‘Rewards’ Rating comprises an Industry and a Country element, which have
a 65% and 35% weighting respectively. These are based upon specific Industry growth
and size dynamics within the market, and the broader economic and socio-demographic
environment of the country.
changes to the new MVDP for consideration, incentives have been
proposed that would favour carmakers producing for export rather
than focusing on domestic demand. While this would clearly support
Ford as the industry’s only exporter, details are still vague and Ford’s
US headquarters is already in the process of studying potential new
models to be built in the country. BMI also believes there is a risk
in supporting exports to the detriment of developing the domestic
industry as a whole. Ford itself highlighted a need to develop parts
production in order to ‘have a competitive auto manufacturing in-
dustry’, when the export issue was discussed in July.
FGP’s president, Randy Krieger, told local press at the launch
of the Fiesta on August 16 that government incentives ‘play a big
part’ in investment decisions. Other criteria include ‘the size of
the domestic market and its needs’. This is similar to BMI’s own
Industry Risk/Reward Ratings, which include total sales and growth
potential over the next five years as criteria for the Industry Reward
component. With a much larger domestic market to begin with and
average annual growth of 4.9% over the next five years, Thailand
has an Industry reward score of 51.6 out of a possible 100, compared
with 48.6 for the Philippines.
For the time being, Krieger says that Ford’s investment in pro-
duction of the Focus in Thailand will not impact its operations in
the Philippines up to 2012. Ford also has an advantage as it is one
of the industry players working with the government to hammer out
the details of the new industry policy.
South Korea
Exports Will Continue To Play
Greater Role In Strategies
Sales results for August show that South Korean carmakers have
achieved some of their strongest growth in export markets, which
is a trend that BMI expects to continue as the country becomes an
important part of wider global planning. This is particularly true
of those companies with international ownership, such as Renault
Samsung Motors.
Ssangyong Motor, which reached an agreement to be taken over
by India’s Mahindra and Mahindra in August this year, registered
the strongest growth by far. Its domestic sales rose 166% from a year
earlier, to 2,506 units. Exports were 242% higher, at 3,668 units,
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South Korea
compared with 1,072 units the year before. The impressive results,
though, are mainly the result of a labour dispute in August 2009,
when striking workers took over Ssangyong’s plant in Pyeongtaek
for two months. This cost the carmaker an estimated KRW300bn
(US$245mn) in lost output and provided an especially low base for
comparison.
Export Strength
South Korean Vehicle Exports By Segment (CBUs)
1,800,000
1,600,000
7M09 7M10
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0 Korea to Western Europe, hoping it will help increase its market
Total Passenger Buses Trucks &
cars SPVs
Source: KAMA
However, BMI believes Mahindra’s acquisition of Ssangyong
will give the SUV specialist access to a wider global audience and
higher export sales should be sustainable, although not at the same
levels as August. India will be one of Ssangyong’s new export
destinations, as Mahindra plans to launch the company’s premium
SUVs to tap into growing demand in the country.
Renault Samsung also stands to benefit from its international ties,
as the Renault-Nissan Alliance has decided the strength of the yen
means that increasing capacity in South Korea to move production
from Japan will be more cost effective. Renault Samsung’s doubling
of exports in August, to 8,736 units, made up for a 5.3% drop in
domestic sales, to 10,153 units, taking total sales up by 34%.
Growth for Kia Motors in August was split relatively evenly
between its domestic and export markets, with South Korean sales
up 53% on last year, to 38,620 units, and outbound shipments up
56%, to 111,921 units. This resulted in overall growth of 55% in the
month, considerably higher than its larger parent Hyundai Motor,
which registered 17% overall growth. However, BMI believes that
Hyundai’s growing network of overseas production bases means
that the need for exports is reduced. This is particularly significant
when global models are produced overseas, such as the i20 compact
made in India.
GM Daewoo Auto and Technology was the one carmaker to
buck the trend with growth of 28.3% in domestic sales in August,
to 9,128 units, compared with a 26% rise in exports, to 39,091 units.
A new product strategy could turn this around, however, as the
GM Daewoo plant will become the first to produce the Chevrolet
Orlando SUV in 2011. The model will first be shipped to Europe
before being sold domestically later in the year. The company has
also commenced exports of the Matiz Creative small car, rebranded
as the Chevrolet Spark, to Uzbekistan, which will begin contributing
to this month’s export results.
Renault’s Import Plans Could
Be Hampered By Aid Conditions
Renault’s plans to replicate the success of its mid-size Renault
Samsung SM5 sedan in Europe are facing disapproval, Bloomberg
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Asia Pacific Automotives
has reported, long before the model’s planned unveiling at the Paris
Motor Show in October. The model, only 5% of which are likely
to be imported into Western Europe from the Renault Samsung
Motors plant in South Korea, has raised the eyebrow of the French
government. Since a sharp 44% decline in France’s auto production
between 2006 and 2009–mostly due to high production costs, the
government sees Renault’s current strategy as part of a drive to shift
more production to low cost bases abroad.
Marketing Logic
Instead, Renault sees the model as a cure for its narrowing share in
Europe, where the Laguna has lost popularity to competing models
from the Volkswagen and General Motors Company stable. While
the Laguna, introduced in H207, has missed its targeted 190,000
sales by the end of H108, the SM5 sedan has proved immensely
popular in South Korea, significantly contributing to the carmaker’s
61% year-on-year increase in sales during H110. In view of this
success, company spokesperson Gaelle Gicquel has revealed the
firm is looking to import 5% of the SM5 models produced in South
share in the mid-size segment.
Problems for Renault, however, stem from the fact that 15% of
the company is owned by the government, which makes it possible
for the government to directly intervene in its operations. Addition-
ally, Renault is bound by the conditions of maintaining domestic
production and helping auto parts suppliers in France in return for
the near EUR6bn in aid that it and compatriot PSA Peugeot Citroën
received from the government last year.
Government Standing Firm
Since then the government has managed to put a considerable amount
of pressure on Renault’s production plans. In 2009, Renault was
forced to reverse its plans of shifting production of the Clio Campus
from France to Slovenia, in a move that reaffirmed BMI’s view
that the aid will keep a check on any significant fall in production
volumes in the country during our forecast period, to 2014.
Preventing Further Loss
France Autos Production: Historical Data And Forecasts
3.5 3.0
3.0 2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5 0.5
0.0 0.0
2007
2008
2009e
2010e
2011f
2012f
2013f
2014f
Total production (CBUs mn) (LHS)
Cars production (CBUs mn) (RHS)
e/f = forecast. Sources: Comité des Constructeurs Français d’Automobiles, Organisation
Internationale des Constructeurs d’Automobiles, BMI
While we continue to hold on to this view, BMI warns that a
complete recovery in auto production to past levels will not be pos-
sible in the foreseeable future. With improved finances being the
utmost priority for carmakers, we do not expect French carmakers
to move production from their low cost bases to France. Rather an
expected 8.8% y-o-y growth in auto production, to 1.84mn units,
this year will merely mirror better capacity utilisation by carmakers
11
South Korea
compared with 2009 levels. Renault’s French plants were reportedly
operating at half of their production capacity last year.
Over time, we expect carmakers to be more inclined to boost
production overseas and gradually reduce production domestically,
after they have repaid the aid. However, we doubt if Renault’s
ownership structure will encourage the company to take such bold
moves in the future.
Kia Follows Asian Example
in Uruguay, But Risk Lays In
Brazil’s Bubble Bursting
Kia Motors has become the latest Asian carmaker to aggressively
target Uruguay as a way of gaining low-cost entry into the highly
competitive Brazilian market.
Following the example of new entrants such as FAW, Chery
Automobile and, Geely Motor, the South Korean firm ‘s Kia Motor
has launched production of its Bongo K2500 light trucks in partner-
ship with the Gandini Group at the latter’s plant in Montevideo.
Such has been the impact of auto growth in Brazil, carmakers in
Uruguay have reportedly doubled their manufacturing in the past
four years with exports nearly tripling.
Other factors stand Uruguay in good stead:
The country has a well-established auto parts making and vehicle
assembly industries, which helps assure new investors.
Uruguay’s membership of Mercosur gives it open access for the
exports of all auto products–except motorcycles–to Brazil and Ar-
gentina, two of the biggest markets in the region. Although Brazil is
the priority market for Kia’s exports from Uruguay, Gandini Group
President Jose Luiz Gandini says it will also be looking to expand
into Argentina and Paraguay in 2012.
In 2007, Uruguay adopted an investment promotion system giv-
ing companies more flexibility in tax payments, VAT refunds on sup-
ply purchases, pre-export financing and other perks. Firms involved
in auto parts trading can also benefit from a low 2% minimum tariff,
subject to certain conditions. Such regulations have helped offer a
better business environment for investors.
Gandini has called the project with Kia ‘a strategic industrial-
commercial alliance’. The company is currently looking to build
12,000 light trucks a year through investment of US$25mn. Produc-
tion will be assisted by the sourcing of parts from 11 plants in Brazil
and six in Argentina and Uruguay.
A major threat to Uruguay’s growth potential, however, comes
from its excessive reliance on Brazil, which BMI fears could be
heading for a slowdown. We see little likelihood of the government
being able to reintroduce incentives, similar to the IPI tax breaks,
given its relatively weak fiscal position and the expected high level
of public investment ahead of the presidential elections in October.
We are also cautions that high levels of exports to China will make
it highly susceptible to a slowdown in the Asian country.
However, good opportunities lay in the fact that Uruguay has
signed a deal with Mexico enabling duty-free exports of vehicles
and parts. Mexico is undoubtedly a market no carmaker can afford
to ignore given that it serves as a platform for entry to the US.
FTA Will Heat Up Competition
Between Asian Carmakers
BMI expects increasing competition between Asian carmakers in
Peru after the country’s free trade agreement (FTA) with South Ko-
12
Asia Pacific Automotives
rea. Although Japanese majors Toyota Motors, Nissan Motor and
Suzuki Motor hold considerable influence in Peru, BMI believes
their dominance could soon be eclipsed by South Korea’s Hyundai
Motor and its sister firm Kia Motors, should a possible FTA be-
tween Peru and Japan be delayed further. Hyundai and Kia currently
stand as the second and the third most popular carmakers in Peru.
Automotive imports into Peru currently attract a 9% tariff. To
that, an immediate outcome of the FTA will be that Peruvian firms
will be able to import large vehicles (with engine sizes over 3,000cc)
tariff-free, the Ministry of Foreign Affairs and Trade in South Korea
has revealed. Meanwhile, imports of mid-size vehicles (with engine
sizes between 1,500cc and 3,000cc) will be made tariff-free within
the next five years. All other vehicles will be exempt from tariffs
in the next 10 years.
Stregthening The Ties
South Korea’s Trade With Peru (US$bn)
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2004 2006 2007 2008 2009
Source: Korea International Trade Association
That would make the auto industry–along with the electronic
segment–the biggest beneficiary from the deal, given that more
than a third of South Korea’s total exports to Peru are auto-industry
related. If Korea International Trade Association estimates are to be
believed, the agreement has already made nearly half of Korea’s auto
exports to Peru tariff-free, leading to a possible 10% year-on-year
increase in South Korean autos exports to Peru.
Without doubt, Japanese carmakers operating in Peru will receive
a setback, not only because talks of an FTA between Japan and Peru
are nowhere close to being sealed, but also due to a slew of FTAs
signed with other markets. As of March 1 2010, Peru entered into
a FTA with China, a major outcome of which will be an influx of
Chinese carmakers into the country. In the same month, Peru, along
with Colombia, concluded trade talks with European carmakers,
making way for in the arrival of European carmakers in the country.
Despite this, Peru may not necessarily be a lost battle for Japanese
carmakers just yet. Given that the aforementioned three Japanese
carmakers collectively hold close to a 40% market share in Peru,
there is a strong possibility that a potential FTA with Japan would
encourage these carmakers to establish a manufacturing presence in
the country. In contrast, the terms of the agreement between South
Korea and Peru have reportedly made provisions to safeguard each
country’s local manufacturing, which may pose limits on local manu-
facturing by South Korean carmakers. There are also concerns that
trade flows between the two partners will also be restricted in future.
For now, Japanese carmakers can draw encouragement from
Suichiro Megata, Japanese ambassador to Peru, who said in July
that the first step to securing an FTA with Peru will be the elimina-
tion of tariffs on Japanese car imports into Peru and that Japan is
looking to conclude its negotiations with Peru ‘as soon as possible’.
www.autosinsight.com
japan
japan
Distinct Brand Strategy And
Local Production To Aid
Nissan’s Expansion Plans
As a part of its new business strategy for Argentina, Nissan
Americas has partnered with Manuel Antelo, the president of Ar-
gentina’s largest automotive logistics company, CAR Group, to
help strengthen the company’s sales, service and distribution and
achieve over a 5% share in the country by 2014.
Fighting The Majors
Argentina New Vehicle Sales (Units), Jan-Aug 2010
Scania, 1,018
Others, 29,150
Iveco, 3,054
Nissan, 6,408 Volkswagen,
Mercedes- 92,323
Benz, 8,823
Toyota, 20,572
Fiat, 47,638
Ford, 49,420
Motors, 70,060
PSA Peugeot Renault,
Citroen, 52,205 53,130
Source: Adefa
Nissan’s operations in the country have so far been supported by
Renault Argentina. This partnership, together with the success of
the Nissan Tiida, helped the Japanese carmaker corner a 1.5% market
share in Argentina in the first eight months of this year, compared
with less than 1% during the same period last year (according to
Asociación de Fábricas de Automotores de Argentina estimates).
Despite this success, BMI believes Nissan’s need for a separate
brand strategy comes in view of the company’s commitment towards
the Argentina and the fact that its French partner holds a much bigger
12% share in Argentina. We believe this difference has prompted
the two firms to pursue independent sales and marketing strategy
in the country.
With Argentina one of Renault’s strongest markets in Latin
America, Renault is keen on firming its presence in the country. To
that, the French carmaker revealed it is looking to use its manufac-
turing facility in Santa Isabel plant in Cordoba to help it develop
vehicles, specifically geared to the local market. Nissan’s break up
with Renault on marketing will therefore help the latter concentrate
on core strategy in Argentina.
On the other hand, BMI believes that a separate marketing strat-
egy will allow the Japanese carmaker to execute its Shift Mercosur
plan, aimed at increasing the proportion of its Latin American sales.
For growth in Argentina, we expect the carmaker to utilise its strong
manufacturing networks in Aguascalientes and Jiutepec, Morelos
in Mexico and Paraná in Brazil, allowing the carmaker to pursue
its strategy for introducing a low-cost vehicle in these countries
during 2010 and 2012.
Nissan’s ambitions will therefore be helped by Antelo’s expertise
in running Car One Argentina, the country’s largest automotive
www.autosinsight.com
Asia Pacific Automotives
retail business. The new agreement between Nissan and Antelo
will commence from late 2011, prior to which it will continue to be
supported by Renault’s operations in Argentina.
Although BMI believes that the Argentine market is far from
saturated–thanks to its low 15.3% vehicle ownership rate–we
believe Nissan will face stiff competition from a large number of
market leaders such as General Motors Company, Volkswagen
and Peugeot Citroën.
Toyota Withdrawal: More About
Protecting US Business?
Toyota Motor has announced it will stop exports of its vehicles to
Iran in line with the UN’s fourth round of sanctions against the coun-
try. It is not the first carmaker to pull out of Iran. Germany’s Daimler
announced in April it would sell its 30% stake in Iranian Diesel
Engine Manufacturing and shelve plans to export to the country.
In Toyota’s case, it has a much smaller interest, having shipped
only 220 cars in the year up to the implementation of the sanctions
in June, which suggests there may be more to the carmaker’s plans.
Separate US sanctions stipulate that any foreign companies ex-
porting material or technologies banned on its list will have its US
finances and business restricted. The timing could not be worse for
Toyota as its mass vehicle recalls and the resurgence of the Detroit
Three have seen its growth in the US slip to singles digits. Sales
General
for the first seven months of 2010 rose 7.5%, compared with 13%,
22.8% and 10.8% for General Motors Company, Ford Motor
and Chrysler respectively. In July, Toyota’s sales for the month
actually fell 3.2%.
There is much more at stake for Toyota in the US than in Iran,
where its sales account for far less than 1% of its global sales. Even
in 2008, when the company reported sales of 4,000 units in Iran, this
was still under 1% of the 8.72mn units sold globally. It is likely that
the withdrawal from Iran is another component of its image rebuild-
ing exercise, particularly as it has recently announced new invest-
ment for truck production in Texas that it will be keen to protect.
Both Toyota and Daimler have been careful not to specifically
mention sanctions, however. While Daimler CEO Dieter Zetsche
said that ‘the policies of the current Iranian leadership’ were behind
its withdrawal, Toyota said only that exports have been halted ‘in
light of the current situation’.
Although the sanctions are leading to the withdrawal of major
international companies, it is also acting as a catalyst for the develop-
ment of the domestic industry. In May, state-run Saipa opened what
it claims is the Middle East’s largest car plant, which will enable the
country to produce a new domestic model and offset the effects of
international sanctions. The US$350mn (IRR4trn) plant in Kashan
will have an annual production capacity of 150,000 units. More
importantly for the industry, the plant will produce the Tiba range
of domestically designed and built small cars and sedans.
Fears of losing parts supplies from international firms have also
prompted Iran Khodro (IKCO) to go ahead with plans to produce
its own alternative fuel engine, powered by compressed natural gas
(CNG), which is readily available in Iran. Dubbed the ‘National
Engine’, it will initially be used in the Samand and the Peugeot
405. IKCO plans to produce 125,000 engines in the current Iranian
year, stepping up its efforts in line with the petrol rations that also
threatened the industry earlier in the year. BMI has previously stated
we believe there will be little difficulty for Iran becoming a dual-fuel
market, as CNG projects have been a key focus of the Iranian Fuel
Conservation Organisation (IFCO) established in 2000.
13
singapore Asia Pacific Automotives

Nissan Looks For GCC Growth Nissan Signs EV Agreement As

Despite Yen Threat Government Shows Signs Of
Contradictory Policy
Japanese carmaker Nissan Motor is looking for ways to overcome
the eroded competitiveness of its exports from Japan thanks to the
strengthening yen, as it aims to achieve sales growth in the markets Japan’s Nissan Motor and the Jordanian Ministry of Environment
of the Gulf Co-operation Council (GCC). Although corporate vice have signed a Memorandum of Understanding (MoU) to promote
president for Nissan’s Africa, Middle East and India division, Gilles electric vehicles (EVs), which seems to contradict earlier policies
Normand, acknowledges that the carmaker’s sales in the Middle towards alternative fuel vehicles. While Minister of Environment
East and North Africa (MENA) are still below pre-crisis levels, he Hazem Malhas hailed the move as ‘an obligation to our future
expects sales for the year ending March 2011 to ‘slightly increase generations’, it is only two months since the government imposed
over 2009’. a tax on the import of hybrid cars.
Work To Do In MEA Under the MoU, Nissan and the government have agreed to
Nissan Global Sales By Region (CBUs)
provide the necessary incentives, charging infrastructure and public
1,200,000 awareness campaigns to make the mass use of electric vehicles vi-
2008
1,000,000 able. Nissan has entered into similar agreements with a number of
2009
800,000 other governments, as it looks to promote it Leaf EV. In connection
600,000 with the agreement, the government is also considering acquiring
400,000
300 Leafs for the public sector to lead by example.
BMI warns that while the move to set up a full support in-
200,000
frastructure and provide incentives for the purchase of EVs is a
0
positive step, there is likely to be some apprehension on the part of
Latin & South America

Middle East & Africa

North America
Japan

Western Europe

Asia Pacific
CEE

consumers and dealers alike following the uncertainty surrounding

the hybrid tax. In June, dealers blamed inconsistent decision mak-
ing for creating an environment where consumers are left uncertain
when it comes to vehicle purchases. The most notable example is
the hybrid import tariff.
Source: Nissan As recently as September 2009, the government issued a state-
ment saying it would not impose a tax on hybrids, which was
The risk to making these increased sales profitable, however, is becoming a growth segment for the industry. Since hybrids were
that almost half of the imported vehicles come from Japan, which made exempt from tariffs in September 2008, over 10,000 had been
is becoming increasingly expensive. Nissan has already been forced imported. However, this decision was reversed from April 30. Ac-
to address this issue in other regions, taking the decision to import cording to dealers quoted by The Jordan Times, consumers are now
its March compact model into Japan from Thailand to make it more hesitant to buy the hybrids, not only because of the tariff making
cost effective. There are also signs that it is increasing exports to them more expensive, but because they are unsure if the decision
MENA from other countries, as it announced in April it export close will be reversed again.
to 20,000 Tiida sedan and hatchback cars from its Mexican subsidi- BMI stated at the time that Jordan could find itself at a disadvan-
ary this year. India has been cited as another potential export base. tage to neighbours such as Lebanon, which had included a tax break
It is likely to be such rejigging of exports that will address the for imported hybrids in its draft budget. The EV agreement appears
issue rather than investing in new MENA capacity. CEO Carlos to be a definite attempt to get a head start on the rest of the region,
Ghosn said there are no plans to invest in new plants in the region, as Malhas claimed ‘Jordan will position itself as a leader in zero
to add to the Nissan plant in Egypt and the Renault plant due to come emission mobility within the Arab region.’ The government is also
onstream in Morocco in 2012. While Japanese brands are welcomed looking into more new technology to back up the project, including
in the Middle East, Ghosn said a free trade agreement with Arab providing renewable energy for recharging EVs through solar power.
states would be needed ‘before going further’. As a result, he says
the best the company can do right now is hold on to market share
in the region. singapore
The regional sales target for the year is 200,000 units, of which
the GCC states are expected to account for 130,000. Ghosn said in Country Will Remain An
February he believes that the company can double its market share
in the region, but a lack of smaller lower cost cars is holding it back. Attractive Investment Location
Although small cars will undoubtedly enhance Nissan’s product
range in the region, BMI notes that the SUV market is traditionally
strong, particularly in the GCC markets and this is where Nissan
Despite Flextronics Pull-Out
Singapore-based parts supplier Flextronics has revealed plans to
has an edge. Ghosn’s February speech marked the launch of the
close down its plant in Mor, Hungary by March 2011, which will
Nissan Patrol SUV, which was tipped to be one of the models that
result in nearly 340 job losses. Although the company has not
will spearhead this attempt to boost market share.
Nissan currently ranks second in the region behind Toyota Mo- disclosed the exact reason for the closure, BMI sees it as a sign of
tor. However, sales will need to recover from the 30% decline in continued weakness in auto production, which is prompting suppliers
2009. While the economic crisis had an adverse impact on sales, to consolidate and restructure their operations. However, we expect
Nissan was also battling to match a record year in 2008, when sales Hungary to continue to be an attractive location for investments from
topped 318,000 units. suppliers over the long term.

14 www.autosinsight.com
australia Asia Pacific Automotives

The closure is a sharp reversal from the company’s earlier ambi- development. Holden claims that it has worked with its Chevrolet
tious plans in the country where it made its foray back in 1993. Since Brazil sister company over the last decade to learn about flex-fuel
then, much of the contract manufacturer’s strategy towards Hungary technology, resulting in the Australian-built 3.0-litre SIDI V6 and
has centred on maintaining a close proximity to its Europe-based 6.0-litre V8 engines.
clients and benefitting from the infrastructure and skilled labour force Returning To Export Growth
in Hungary. However, under the current plan, part of the production Australian Vehicle Exports (CBUs)

at the Mor plant will reportedly be transferred to its Zalaegerszeg 250,000

facility in Hungary and partly to China. Exports

200,000
Bolstered By International Participation
Hungary’s Network Of Automotive Manufacturers*
150,000

Arcelor, Audi, Autoliv, Dana, Delphi

Western Transdanubia Packard, Federal Mogul, Magna 100,000
Steryl, Schaeffler
Borg Warner, Bridgestone, Continen- 50,000
Central Transdanubia tal Teves, Denso, Gedia, Gestamp,
Hankook, Lear, Valeo, Vistoen
0
Southern Transdanubia BHG, CabTec, Ratipur

2006

2007

2008

2009

2010f

2011f

2012f

2013f

2014f
Continental, ContiTech, Lear, MGM,
Central Hungary
Michelin, Webasto f = BMI forecast, Source: FCAI

Akzo-Nobel, Bosch, Lear, Leoni, ZF

Northern Hungary
Hungana
Caroflex, EMCON, Michelin, Schaef-
Northern Great-Plain
fler
Southern Great-Plain Continental, Phoenix, ThyssenKrupp
* the list is not exhaustive. Source: ITD Hungary
Hungary has now emerged as an integrated supplier base in the
region, where the industry is worth EUR9bn, according to estimates
from the Hungarian Investment and Trade Development Agency.
Although suppliers currently export 88% of their total production,
the segment has also received a fresh boost from original equip-
ment manufacturers Audi, Suzuki Motor and Daimler establishing
a local presence.
Despite a sharp fall in orders among suppliers owing to the
overall caution about the pace of recovery in Europe’s auto indus-
try, there remains significant optimism in the supplier segment in
Hungary. South Korean Hankook Tire plans to invest EUR230mn
in its manufacturing centre in Rácalmás in a bid to double annual
production to 10mn by 2012. German Bosch, meanwhile, will spend
HUF9bn to expand research and development at its Budapest plant.
More help to these investments will come from the weakening of
the forint against the euro, which will undoubtedly help boost export
growth, thereby encouraging parts suppliers to increase production.
australia
Cross-Continent Cooperation
Makes Holden Flex-Fuel A
Reality
Holden, the Australian subsidiary of General Motors Company
(GM), has released a flex-fuel variant of its Commodore large sedan,
aimed at not only tapping growth in its domestic market, but also
the lucrative flex-fuel segment in Brazil, which played a part in its
The Commodore II flex-fuel models were developed largely with
the local market in mind. Holden’s chairman and managing director,
Mike Devereux, has said it is aware that ‘Australians want better
performance’, which includes greater fuel efficiency and sustain-
ability. It should give the company access to a niche in the large car
segment, which grew 2.6% in the seven months to July [source?]
The issue of supporting infrastructure, which BMI believes is
crucial to the success of any alternative fuel in a country, has also
been addressed. Caltex, the local arm of Texaco, will supply Bio E-
Flex at 31 service stations throughout Melbourne, Sydney, Canberra,
Brisbane and Adelaide by the end of October, with the number due
to increase to 100 stations by 2011. The Holden engines can run on
a mixture of up to 85% ethanol and 15% petrol (E85).
Strong demand for flex-fuel vehicles in Brazil means that the
Commodore II can form the basis of a return to exports of Australian-
built vehicles. The model will be rebadged as the Chevrolet Omega
and a limited run of 600 units will be shipped from November.
Targeting the Brazilian market, where Holden estimates flex-fuel ac-
counts for 45% of all vehicle fuel used, is also part of the company’s
strategy to rebuild targeted export programmes after the economic
crisis. Holden exported to Brazil between 1998 and 2008.
Even in limited form, a boost in exports for one of Australia’s
three remaining vehicle producers will contribute to the industry’s
recovery from a 40% drop in exports in 2009. BMI expects a modest
upturn in 2010, with a 4.3% increase in exports forecast, in line with
a 6.5% increase in production. However, we warn that the strength
of the currency is a risk to export growth, as is the recovery of major
export destinations. Targeting high-growth emerging markets would
protect against this to some degree.
We do not expect demand for flex-fuel vehicles in Brazil to de-
cline in the near future as up to 90% of Brazil’s car fleet is powered
by flex-fuel engines. This has been to the detriment of other alter-
native fuels. In June, Brazilian President Luiz Inácio Lula da Silva
scrapped plans to provide incentives for the production of electric
vehicles (EVs) in the country. He said their introduction would risk
ethanol production, which increased 290% between 2000 and 2009,
according to the Brazilian Sugarcane Industry Association.

Analyst: Anna Marie-Baisden/Preeti Bajla
Sub-Editor: Olly Morrison
Subscriptions Manager: Dan Xue
Marketing Manager: Leila Scott
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Production: Jonathan Robson
Publishers: Richard Londesborough/Jonathan Feroze
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